Philippines not banking on virtual currency yet

Though touted as enabler of e-commerce, adoption of online money is hindered by lack of single or dominant unit able to connect consumers and traders.

MANILA--The e-commerce landscape in the Philippines can be likened to the country's geographic nature: a vast but disparate archipelago with different regions speaking their own languages.

While local sites have sprouted recently to stake a claim on the burgeoning e-commerce industry, each online venture has created its own online currency or virtual money. The result is a mix of online currencies with no single or dominant unit that links consumers and traders together.

Virtual money has been touted as an enabler of e-commerce, an important tool that bridges online users with companies offering e-commerce services. However, the Philippines appears not to be in a hurry to plug this lack of standardization.

Elaine Uy, chief marketing officer of business portal and e-commerce site Yehey, said: "If you look at the online users in the country, everyone is already selling something on the Internet. But, there's no payment gateway or medium by which they could perform their transactions."

Uy said in a phone interview that buyers and sellers usually just meet up in person to complete their online deals. This, she said, is inhibiting the growth of e-commerce beyond the realm of consumer-to-consumer (C2C) transactions, into business-to-consumer (B2C).

Yehey has its own virtual money called "Bretas", which is a combination of two words--"bre" meaning addition and "tas" for multiplication--adopted from an old language in Bohol, a province in central Philippines.

Although Bretas serves as a rewards system that gives users points they can redeem for prizes, or to participate in various activities, Uy said the Web traffic and number of consumers using the online currency have not been impressive.

"I guess it will take a lot of convincing to make users comfortable with virtual money," she said, adding that consumers are still wary of the security threats that plague activities conducted via the Internet.

The Bangko Sentral ng Pilipinas, the government body tasked to regulate the country's financial sector, has not yet issued a circular governing the use of online currency or virtual money.

What it sought to regulate recently was "electronic money" (e-money), which are funds transferred or remitted through instruments such as cashcards and e-wallets accessible via mobile phones. The e-money, however, is not the same as the online currency or virtual money mostly used in Internet commerce.

According to Auction.ph, a Korean-controlled online bidding site that promotes online currency called e-money, virtual currencies are "naturally feasible when it is integrated into a payment system, rewards system or subscription system".

Credit cards still popular
Angelo Hernandez, public relations manager of Auction.ph, noted that while virtual currencies have their advantages, they cannot replace credit cards as the preferred choice of payment.

"Banking institutions are very quick in terms of integrating their systems online, and since people are more familiar with these systems and have a history of trust with these institutions, people tend to adapt to these systems more openly," Hernandez said in an e-mail interview.

"Web developers also tend to integrate the credit card systems into their Web sites because it's easier, and it saves you the trouble of educating users and earning their trust, which is more challenging," he added.

Thus, Hernandez said, even if Auction.ph offers its own virtual currency, supporting credit card as a payment option is still a major priority for the company. "Our research says that integrating credit card payments will significantly increase our transactions," he said.

Research firm IDC agrees with Hernandez's assertion that virtual currency must be measured in actual value by consumers.

Michael Araneta, senior consulting and research manager at IDC's Financial Insights, said: "In considering the prospects of wider use of online money, you need to obviously consider how it can be a substitute for 'real money'--what we are using now. Online money has to be a real, legal tender for transactions online as well as in the real world."

Singapore-based Araneta said in an e-mail, online currencies should be "used beyond the Web site that originally brought it to light, meaning, it has to be widely acceptable for online purchases".

However, the analyst noted that porting online money to the real world would be a very difficult task.

"For now, I think card-based payments have established their foothold in the virtual world and it would be quite difficult to for another alternative to gain critical mass. Cards have credibly resolved issues like security, fraud and even fees--so frankly, alternatives would have great difficulty in scaling up," said Araneta.

But, one industry that has successfully made virtual money a vital part of its system is the online games sector. The model has been so successful that it has spawned an underground economy where players sell their virtual money for actual cash.

Games companies have tapped the potential of virtual money by initially luring players with "free" online games. If the players are keen to go on to another level or purchase in-game weapons and merchandise, they will then be required to buy virtual money in order to conduct these transactions.

Gil Edeza, COO of IP e-Games, the online games subsidiary of tech conglomerate IPVG, said the company is using virtual currency to enhance the gamers' experience.

Under IP e-Games' system, one "e-Point" equals 1 peso (US$0.02). Players can buy top-up cards and use these to purchase in-game items such as armors, weapons, fashion items and mounts.

Because of the established distribution network for prepaid cards in the Philippines, Edeza said virtual money has the potential to rival the credit card system. Virtual money, he said in an e-mail interview, gives consumers an alternative means to make purchases without owning a credit card.

"Is it pervasive? Yes. But, is it mainstream? We're not there yet," Edeza said. Unlike the e-commerce sector, there is a thriving virtual economy bustling inside the world of games, he added.

Melvin G. Calimag is a freelance IT writer based in the Philippines.